Opinion
CA 3:01-CV-853-R
April 18, 2002
MEMORANDUM OPINION AND ORDER
Carl Marvin Applewhite ("Applewhite") filed suit against Computer Associates International, Inc. ("CA") and Sterling Software, Inc. ("Sterling") for breach of contract and negligence. Now before the court is Plaintiff's Motion for Summary Judgment (filed November 21, 2001). Plaintiff's Motion for Summary Judgment is DENIED for the reasons herein stated.
I. FACTUAL BACKGROUND
Carl Marvin Applewhite ("Applewhite") is a former employee of Sterling Software ("Sterling"), which was acquired by Computer Associates ("CA") in April 2000. Applewhite was granted stock options on July 1, 1997, under a Stock Option Agreement with Sterling, which was subject to Sterling's 1996 Stock Option Plan. The Stock Option Agreement provided that Applewhite was to receive the right to 65,000 options at a price of $31.25 per share over a period of four years beginning with the first anniversary of the Stock Option Agreement on July 1, 1998. Applewhite was entitled to the next twenty-five percent of the 65,000 options on July 1st of each year for the next four years. On July 1, 2002, the fifth anniversary of the Stock Option Agreement, any and all stock options not yet exercised would be void. The Stock Option Agreement permits Applewhite to exercise vested options at his discretion.
On March 11, 1998, Sterling declared a two-for-one stock split; and on March 20, 1998, Applewhite and Sterling executed an Amendment to the Stock Option Agreement ("Stock Option Amendment"). This Amendment doubled the number of total options to which Applewhite was entitled, creating a new total of 130,000 options over four years. The Stock Option Amendment also reduced the option price of the Sterling Stock to $15.625 per share.
Applewhite and Sterling's third and final agreement was the Separation Agreement, dated October 31, 1998. The Separation Agreement created a transition period, whereby Applewhite was to remain an employee of Sterling until April 30, 2000. Additionally, the stock options granted under the prior agreements were to continue to be exercisable for ninety days after the termination date, making the options exercisable until July 29, 2000.
In April 2000, CA acquired Sterling. As a part of this acquisition, CA instituted a "black-out period" preventing former Sterling employees from exercising their stock options while CA was in the process of converting the Sterling stock options into CA stock options. The black-out perioded ended on May 22, 2000, when CA mailed Computer Associates' Stock Option Certificates to the former Sterling employees. Applewhite did not receive a CA Stock Option Certificate, so he contacted CA.
Applewhite informed CA of the omission, and he faxed evidence of his Stock Option Agreement to CA employee Sedaco Humano ("Humano") on June 15, 2000. CA then researched Applewhite's claim that he was entitled to CA stock options. On June 29, 2000, CA confirmed Applewhite's status as a CA stock option holder, and later mailed Applewhite a CA Stock Option Certificate. CA converted Applewhite's remaining Sterling options into options to purchase 28,170 CA shares at $27.74 per share. All of the other terms of the Stock Option Agreement between Applewhite and Sterling remained in force.
Applewhite contacted CA many times between the end of the black out period on May 22, 2000 and when CA verbally confirmed Applewhite's status as a CA stock option holder on June 29, 2000. Applewhite's telephone calls were attempts to exercise his stock options before their expiration under the Settlement Agreement on July 29, 2000. Applewhite received his CA Stock Option Certificate on July 3, 2000, but it was too late in the day to exercise his options. Because of the July 4th holiday, Applewhite was unable to exercise his options before July 5, 2000.
Applewhite's communication with CA representatives during this time period is well documented. Applewhite has produced a record of his countless verbal and non-verbal communications, including at least ten telephone calls to CA between June 15, 2000 and June 29, 2000.
CA stock traded throughout most of the month of June 2000 in a range between $50.00 and $59.00 per share. On July 3, 2000, CA stock traded between $50.31 and $52.91 per share. But when the market reopened after the July 4th Independence Day holiday on July 5, 2000, CA stock traded between $28.50 and $32.00 per share. From July 5, 2000 through July 29, 2000 (the day that Applewhite's options expired), there were many days where CA stock traded below Applewhite's $27.74 per share option price. Applewhite was attempting to exercise his CA stock options from before the black-out period's start date until the stock price plummeted on July 5, 2000; but for CA's breach of contract and negligence, Applewhite would have been able to exercise the vested options. The instant case results from CA's failure to make it possible for Applewhite to exercise his stock options before July 5, 2000.
None of the parties inform the Court of the black-out period's start date; however, Applewhite states that he "attempted to exercise his stock options in April [2000]" when he was informed that the black-out period had already begun. Pl's Br. in Supp. Mot. Summ. J. at 7.
II. ANALYSIS
A. STANDARD OF REVIEW
Rule 56(c) of the Federal Rules of Civil Procedure allows summary judgment only when the moving party demonstrates it is entitled to judgment as a matter of law because there is no genuine issue as to any material fact. See FED. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Melton v. Teachers Ins. Annuity Assoc. of Am., 114 F.3d 557, 559 (5th Cir. 1997). The moving party bears the initial burden of identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and any affidavits that it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp., 477 U.S. at 323.
Once the movant has discharged its initial burden under Rule 56, the nonmovant must set forth specific facts, by affidavits or otherwise, showing that there is a genuine issue for trial. See Topalian v. Ehrman, 954 F.2d 1125, 1132 (5th Cir. 1992), cert. denied, 506 U.S. 825 (1992). In weighing the evidence, the court must decide all reasonable doubts and inferences in the light most favorable to the nonmovant. See Walker v. Sears, Roebuck Co., 853 F.2d 355, 358 (5th Cir. 1988); Thornbrough v. Columbus Greenville R.R. Co., 760 F.2d 633, 640 (5th Cir. 1985). As long as there appears to be some support for the disputed allegations such that "reasonable minds could differ as to the import of the evidence," the motion for summary judgment must be denied. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
B. PROCEDURAL MATTERS
In CA's Brief in Support of Defendant's Response to Plaintiff's Motion for Summary Judgment, nonmovant CA raises several objections to the summary judgment evidence presented by Applewhite. CA raises seven objections that fall under three headings: hearsay objections, a Best Evidence Rule objection, and objections that Applewhite's Declaration is conclusory.
CA argues that objections one, two and six contain hearsay statements; thus they should not be considered as summary judgment evidence. The objections do not refute the veracity of the statements made; therefore, they are DENIED. CA also objects that the items contained in objections three, four and seven are conclusory statements and do not constitute statements of fact. These objections are DENIED.
CA also argues that the document referred to in objection two has not been properly authenticated. Although the document must be properly authenticated for use at trial, the document will be considered for the purposes of summary judgment. Therefore, the objection is DENIED.
CAs fifth objection is a Best Evidence Rule objection to the additional statements in Applewhite's Declaration. CA's objection argues that this portion of Applewhite's Declaration should not he permitted because the letter it references is in fact the best evidence of its contents. The Court agrees that the letter itself is the best way to express its content; however, referenced letter was submitted along with Applewhite's Declaration. Therefore, the Best Evidence Rule objection is DENIED.
C. BREACH OF CONTRACT
Plaintiff Applewhite moves for summary judgment on the claim that CA breached their contract with Applewhite. This Court has supplemental jurisdiction over this state law claim. See 28 U.S.C. § 1367(a). The contract between Applewhite and CA consists of the three agreements between Applewhite and Sterling. The essential elements of a breach of contract claim are: (1) that a contract existed between the parties; (2) creating duties; (3) which the defendant materially breached; (4) causing the plaintiff damages. Bank One, Texas. N.A. v. FDIC, 16 F. Supp.2d 698, 713 (N.D. Tex. 1998).
The parties do not dispute that the first two elements of the breach of contract claim are met, Both parties acknowledge that the three agreements have created a contract and that the contract has created a duty on the part of CA to ensure that Applewhite's stock options "continue to vest and continue to remain exercisable" pursuant to the Stock Option Agreement. J.A. at 15-16 (Separation Agreement at § 2.5). Plaintiff Applewhite claims that as a matter of law, CA materially breached its duty under the contract in two ways: 1) by imposing a blackout period that prevented Applewhite from exercising his options as he desired; and 2) by failing to timely provide Applewhite with his CA Stock Option Certificate so that he could exercise his options.
CA responds by arguing that they did not materially breach a duty to Applewhite because Applewhite's actions did not trigger CA's contractual duties. CA asserts that the contract between the parties is an options contract; therefore, a duty does not arise until the option is exercised. CA states that Applewhite's telephone calls attempting to exercise his stock options in April-June 2000 did not constitute a formal attempt to exercise stock options as required by the contract. According to CA, Applewhite was required to present a "notice of exercise" in writing to formally attempt to exercise the options. CA argues that as a result of Applewhite's failure to follow the requirements for exercising his stock options, a question of material fact exists as to whether or not CA breached their duties as a matter of law.
Applewhite rebuts that the Separation Agreement modified the Stock Option Agreement to create a bilateral contract, not an option contract. Nevertheless, he asserts that his actions in April-May 2000 were sufficient to create a duty on the part of CA to ensure that his options "continue to remain exercisable" under the terms of the Separation Agreement. J.A. at 15-16 (Separation Agreement at § 2.5).
The Court makes all reasonable inferences in favor of the nonmovant, CA. Therefore, the Court construes CA's characterization of the agreement as an options contract to be reasonable for the purposes of summary judgment. Whether Applewhite's attempts to exercise his options constituted a valid attempt at exercising his contractually guaranteed stock options, that in turn would invoke CA's duty, is a question of material fact. Therefore, Plaintiff's Motion for Summary Judgment on the breach of contract claim is DENIED.
In finding that a genuine issue of material fact exists, the Court does not address the damages element of the contract breach claim.
D. NEGLIGENCE
Plaintiff Applewhite also moves for summary judgment on his claim that CA was negligent in its handling of his employee records. The elements of Applewhite's negligence claim are: (1) the existence of a duty on the part of one party to another; (2) a breach of that duty, and (3) injury proximately caused by the breach. FDIC v. Niblo, 821 F. Supp. 441, 454 (N.D. Tex. 1993). Applewhite argues that CA owed Applewhite a duty to properly maintain his employee records and paperwork, and CA's failure to do so constitutes a breach of CA's duty, which constitutes negligence. Applewhite argues that this failure was the proximate cause of his damages. There are two essential elements of proximate cause: foreseeability and cause in fact. FDIC v. Ernst Young, 967 F.2d 166, 170 (5th Cir. 1992). Applewhite states that CA's negligent handling of his employee file was both forseeable and the cause in fact of his damages as a matter of law, making summary judgment appropriate.
CA responds that Applewhite's negligence claim is not valid because it is simply a duplication of Applewhite's breach of contract claim. CA argues that according to Texas law, there can be no recovery for "economic type" damages in a negligence action, because the negligence claim is barred when the damages arise out of a breach of contract dispute. Coffey v. Fort Wayne Pools, 24 F. Supp.2d 671, 687 (N.D. Tex. 1998).
Applewhite acknowledges the fact that negligent failure to perform a contract is not, on its own, an actionable tort in Texas. See Bass v. Hendrix, 931 F. Supp. 523, 537 (S.D. Tex. 1996). But Applewhite avers that CA's actions constitute negligence because CA breached a duty that is independent of the fact that a contract exists between the parties;" and, that this duty arises independent of a contract because it is imposed by law rather than by contract. Southwestern Bell Tel. Co. v. Delaney, 809 S.W.2d 493, 494 (Tex. 1991); see also Bass, 931 F. Supp. at 537.
Making all reasonable inferences in favor of CA, a question of material fact has been raised as to whether or not Applewhite's negligence claim is a valid cause of action in Texas. As a result, whether or not CA breached a duty that is independent of the contract, is a genuine issue of material fact. As a result, Plaintiff's Motion for Summary Judgment on the negligence claim is DENIED.
CA also presents a second argument, averring that the release in the Separation Agreement between Applewbite and Sterling is a bar to any recovery under negligence theory. But the Court does not find it necessary to address this argument because it has already denied summary judgment, finding that a question of material was raised in CA's first argument.
E. FAILURE TO MITIGATE
It follows that after denial of Plaintiff's Motion for Summary Judgment on both the breach of contract and negligence claims, that the Court also denies summary judgment on s affirmative defense that Applewhite allegedly failed to mitigate his damages. Therefore, Plaintiff's Motion for Summary Judgment on Defendant's affirmative defense is DENIED.
IV. CONCLUSION
Plaintiff's Motion for Summary Judgment is DENIED in full.